Inflation in Egypt reached 14 per cent in October as living costs continue to increase amid what is being described as an economic crisis.

The rising cost of living is rooted in the currency problem, which has resulted in several commodities witnessing significant price hikes due to the country’s dependence on imported goods.

Limitations on the supply of dollars have forced many businesses to the black market, with imports hit hardest by the currency crisis, which is entering its third year.

This has resulted in a shortage of dollars at the central bank, resulting in a number of measures seeking to alleviate pressures being caused by an inflated black market. Black market traders are buying dollars at £E17.5-£E17.8 and selling them to importers at £E18, representing a two-pound slide in a single week and a five-pound slide on the month despite a fixed bank rate of £E8.8, explains a local banker.

More recently, a shortage of sugar caused by the increasing cost of imports has fuelled public discontent and has served as the latest facet of Egypt’s economic crisis. The authorities have blamed traders and suppliers for hoarding and smuggling goods, and say they have so far seized about 9,000 tonnes of sugar, including facilities belonging to Pepsico and Edita Food industries.

The authorities have been struggling to alleviate a situation that has left many suppliers unable to import key raw materials. In response to this the central bank recently announced it is allocating $1.8bn to build a six-month food supply.

Tough reforms

Rising living costs have also been fuelled by tough economic reforms including an increased sales tax of 13 per cent and the lifting of key subsidies on food and fuel products. Ordinary Egyptians have seen electricity bills increase by about 25-30 per cent in the past two months.

Increased prices can be seen across all sectors and products across Egypt and as living conditions inevitably worsen in a country where an average salary does not exceed $100 a month, public discontent has been increasing. Some have called for mass demonstrations on 11 November to protest against “the government’s inability to manage the economy”, according to a number of local activists.

Egypt’s currency woes are caused by a shortage of hard currency, which has been exacerbated by declining revenues from tourism, the Suez Canal and foreign direct investment (FDI).

Tourism was served a major blow in October 2015, when a Russian passenger jet was downed by Islamic militants operating in the Sinai region. Since then, Egypt has failed to attract the number of tourists it needs. Tourism revenues were only $5.9bn in 2015, compared with $7.3bn in 2014. Figures for 2016 are expected to be lower than 2015 and far from the figures seen before the 2011 uprising, with the country raking in $12.5bn in 2010.

FDI has also been stagnant as Egypt fails to update key investment laws needed to attract the level of investment it promised in 2015.

The authorities have said a second round of devaluation is imminent once foreign reserves hit $25bn, although there is no indication of what the new bank rate will be. Local businesses and analysts have previously told MEED the bank must float the currency rather than devalue it.

“My fear is that they will come up with the wrong price,” Naguib Sawiris, CEO and chairman of the local Orascom Telecom Media and Technology, told MEED in an interview on 12 October. ”When you look to float your currency, you must look where the market is. If you start lower than the market then you keep the black market.”